In recent times, the prevailing narrative in the media suggests that the post-pandemic economy is thriving. This upbeat tune implies that growth is robust and that favorable conditions are here to stay. However, upon closer examination, some dissonant notes begin to emerge.
The Commerce Department recently reported a second-quarter gross domestic product (GDP) growth rate of 6.5 percent annually. While this figure might initially seem promising, it falls short of the 8.4 percent forecast by Dow Jones economists. This discrepancy raises concerns about the sustainability of an economy reliant on significant fiscal stimulus and accruing long-term debt.
Similarly, remarks made by Federal Reserve Chair Jay Powell during the latest Federal Open Market Committee press conference hint at ongoing challenges: “we’re some way away from having had substantial further progress toward the maximum employment goal.” Consequently, the Fed plans to maintain a near-zero federal funds rate while generating credit at an alarming rate of $120 billion per month to purchase Treasuries and mortgage-backed securities.
Such actions raise critical questions. If the economy were genuinely robust, we would expect discussions around tapering these security purchases. Instead, the reliance on monetary stimulus signals fragility rather than strength.
Woke and Enlightened
The dilemma for the Federal Reserve intensifies with each passing day. Removing the monetary “crutches” risks triggering a financial catastrophe, yet retaining them too long opens the door to a significant devaluation of the dollar. These uncomfortable choices are a direct result of decades of questionable monetary policies.
Attempting to control the economy through monetary policy is fundamentally flawed. Evidence indicates that such interventions fail to stabilize business cycles, often exacerbating economic fluctuations.
Furthermore, the landscape is not solely shaped by the Fed; an array of lawmakers and bureaucrats are tirelessly working to influence your wealth and autonomy. Today’s crop of policymakers is particularly distinct—they are both “woke” and progressive.
Working from the comforts of their home offices, they sip chilled beverages while denouncing the injustice of unequal outcomes. They ponder, “Why can’t everyone be compensated for lounging at home?” These individuals thrive on creating new legislation aimed at redistributing wealth and achieving societal equity.
In their eyes, equality before the law is insufficient; they seek to rectify perceived systemic inequalities through government-driven outcomes.
One Lockdown from Disaster
Underlying this planning mentality is a belief that government officials can manage your finances better than you can. When planners redirect your taxpayer money to Washington, it inevitably goes to their associates rather than your community. Is it merely a coincidence that the wealthiest counties in the United States are located close to the Capitol?
What value the residents of these counties generate is often vague. However, the high salaries associated with non-essential government jobs in places like Loudoun County and Fairfax County speak for themselves.
This week, a bipartisan coalition of senators agreed to advance a whopping $1.2 trillion infrastructure bill, including $550 billion in new spending. The remainder of the package consists of previously allocated funds, though it’s unclear whether they will genuinely enhance infrastructure.
This government-directed stimulus may further entrench the economy’s dependence on federal allocations. Workers will find their livelihoods contingent upon these projects—many of which may be ineffective—while contributing to a troubling economic reality, where debt consistently surpasses GDP growth.
But the issues extend beyond infrastructure spending. Following this bill, Congress will address a $3.5 trillion budget reconciliation plan, aimed at possibilities like ‘human infrastructure,’ which includes provisions for healthcare, paid family leave, and education.
Whether focused on tangible infrastructure or social initiatives, these financial strategies—coupled with continuously rising debt, deficits, and inflation—paint a bleak picture. Faced with a potential new lockdown driven by COVID-19, we find ourselves perilously close to a disaster.
Sincerely,
MN Gordon
for Economic Prism
